New batch of Enterasys sentences readied

Published: August 28, 2007

Prosecutors are recommending that three former executives who cooperated by testifying against five fellow Enterasys Networks executives at their trial last December should serve as little as 18 months and as many as five years in jail when they are sentenced tomorrow in Concord.
In a pre-sentencing motion filed last Friday, Assistant U.S. Attorney William Morse did not recommend any sentence reduction for Gary Workman, the head of the firm’s Asia Pacific division whose testimony may have actually hurt the prosecution. Instead, Morse recommended he receive the low end of the scale for wire fraud: 57 months, only a few months off of the five-year cap Workman agreed to in his plea bargain.
On the other hand, Morse recommended that former comptroller Anthony Hurley’s sentence be cut by more than two-thirds, to the 18-to-24-month range, and that Gayle Spence, an assistant to former Enterasys president Enrique “Henry” Fiallo, should serve between 27 and 33 months. Fiallo also cooperated, but is not scheduled to be sentenced until October.
Morse’s recommendations are not binding. A final decision will be made tomorrow by U.S. District Court Judge Paul Barbadoro, who oversaw the monthlong trial of the five former Enterasys executives last December. The toughest sentence Barbadoro imposed after that trial was an 11-1/2-year prison term for the former chief financial officer, Robert Gagalis.
The executives were convicted of conspiring to inflate revenue in 2001, when Enterasys was being spun off from the former Rochester-based Cabletron Systems.
Workman pleaded guilty days after he was identified as a target for his participation in the alteration and backdating of contracts related to a $3.5 million transaction.
Workman was the lead-off witness, and his testimony against Jerry Shanahan - the one defendant who was not convicted along with the other four -- was termed “devastating” to the prosecution, Barbadaro said at the time. Workman had testified that Shanahan arbitrarily increased revenue goals over the previous quarter, when actually he reduced the target.
Shanahan’s attorney spent several days cross-examining Workman, even calling him a liar at one point, and prosecutors were forced to stipulate that Workman’s information was inaccurate.
“In short,” wrote Morse, “Workman’s testimony created the appearance that the government had intentionally elicited from him inaccurate testimony against Shanahan.”
Workman’s attorney - without mentioning that testimony - emphasized his earlier cooperation. His attorney also lauded the 61-year-old Vietnam veteran as a family man who was involved in several charitable endeavors.
“He exercised no discretion but only followed direction,” wrote his attorney, who pleaded that Workman be sentenced to probation plus community service so he could continue work with a start-up computer company in Asia, or that any sentence at least start after Christmas so he could continue to work on a “toy battalion” program for needy children.
Hurley’s testimony, by contrast was not contradicted on cross-examination.
It was Hurley who actually altered and backdated the Ariel agreement, but Hurley was the “low man on the totem pole” in the company’s accounting department, emphasized his lawyer, and was only responsible for a small part of the company’s loss.
“He was, to put the matter bluntly, the conspirator’s errand boy,” wrote his attorney. It was Hurley who provided information that brought in Spence, and it was Spence’s plea that led to Fiallo.
Hurley, who has since started a landscaping business, would particularly be hit hard because his wife can’t have children, and if he served time, would probably never be able to adopt children as they had planned, said his attorney who asked that he be sentenced to home incarceration and community service.
Prosecutors recommended that Hurley receive the low end of the 18-to-24-month range, due to “substantial assistance” in deciphering accounting records, and in recounting specific conversations that implicated Gagalis in another accounting gimmick to inflate revenue - so-called three-corner deals.
Spence had a much larger role than Hurley, both in the Ariel transaction and in the three-corner deals.
But Morse lauded Spence for the “extraordinary amount of time and energy” she put in in helping the prosecution. In addition, Fiallo pleaded guilty almost immediately after learning that Spence had decided to cooperate.
Without - at least at deadline - any filing on her behalf by her attorneys, prosecutors recommended a sentence of 27 to 33 months. - BOB SANDERS

This article appears in the August 17 2007 issue of New Hampshire Business Review